EPAct 179D Experts

"The least expensive kilowatt, is the one not used."

- Jacob Goldman

The Tax Aspects of the Baxter International Medical Device Sustainability Supply Chain

Baxter International (Baxter), the global medical device company, is
one of the few companies that quantifies current and long-term
economic fast return from environmental initiatives and provides an
annual Environmental Financial Statement which is presented as
Exhibit 1. The April 2012 issue of the CPA Journal has a
comprehensive accounting reporting cover story on "Sustainability
Reporting: Integrating Environmental, Social and Economic
Performance" that includes a discussion of the Baxter program.

This article is designed to describe the accompanying tax aspects of
the type of Sustainability Supply Chain environmental program
utilized by Baxter.

EPAct Section 179D

Under Code Sec. 179D, as enacted by the Energy Policy Act of 2005
(EPAct), building owners who make qualifying energy-reducing
investments can obtain immediate tax deductions of up to $1.80 per
square foot.
If the building project doesn’t qualify for the maximum of $1.80 per
square foot immediate tax deduction, there are tax deductions of up
to $0.60 per square foot for each of the three major building
subsystems: Lighting, HVAC and the Building Envelope. The building
envelope covers every part of the building’s exterior perimeter that
touches the outside world including roof, walls, insulation, doors,
windows and foundation.

The Baxter Environmental Financial Statement

The complete 2010 Baxter Environmental Financial Statement is
presented in Exhibit 1. The statement presents the detail for both
environmental remediation, energy cost reduction measures and other
initiatives for both the current year and six years prior to a
report year.

Potential EPAct Benefits for Baxter

Typical Medical Device Company Energy Efficiency Measures

Lighting
At the plant land warehouse level most medical device companies are
upgrading prior generation T-12 and metal halide lighting to more
energy efficient fluorescent, or LED lighting. For offices and
laboratories many medical device companies are now upgrading to very
low wattage LED lighting.

HVAC
IRS has just issued a notice making it easier to qualify for HVAC
EPAct tax deductions by achieving a 15% overall energy cost
reduction down from the previous law's 16 2/3 energy reduction
standard.
For non air conditioned plant and warehouse spaces, many medical
device companies are upgrading to natural gas heaters.
For their air conditioned spaces, medical device companies often use
a variety of highly energy efficient equipment including chillers ,
geothermal , thermal storage , energy recovery ventilation and
chilled beam.

Baxter Supply Chain Position
A large portion of Baxter’s product sales are to hospitals,
therefore, Baxter itself is a Tier 1 supplier. Hospitals are also
endeavoring to reduce their energy costs and utilizing EPAct where
applicable . Tier 2 and Tier 3 property owners supplying Baxter
would include component supplier companies and packaging companies.
Baxter can use its own reporting data to identify energy savings
projects eligible for tax savings for itself and for its lower tier
suppliers. By reducing its own energy costs and encouraging its own
suppliers to reduce their energy costs, the entire Baxter Supply
Chain can support national health care cost reduction. Hopefully
more medical device companies will follow Baxter's lead.